There is a continuing interest in the relationship between the retail price and the wholesale price for commodities. The retail price of a commodity generally reflects the wholesale price plus the cost of marketing the commodity from the raw material level to the retail level. In the case of gasoline, the Energy Information Administration (EIA), the independent statistical and analytical agency within the Department of Energy (DOE), published a study entitled “Price Changes in the Gasoline Market,” DOE/EIA-0626, February 1999. In this EIA report, the retail price of gasoline is divided into three main components: crude oil prices, manufacturing and marketing costs and profits, and taxes (see FIG. 1). Crude oil prices are considered to be the most important component of the retail price of gasoline. One reason is that, while manufacturing and marketing costs may change relatively slowly, crude oil prices can be extremely volatile, even on a daily basis. This volatility makes accurate prediction of the retail price of the gasoline very difficult. At the refinery level, the spot gasoline prices may move symmetrically in response to crude oil changes, which means that the volatility is also evident at the refinery level (see FIG. 2). The existence of a futures market for domestic crude oil permits the knowledge of actual prices to be disseminated very quickly. This allows gasoline prices further down the distribution chain such as rack prices to be closely correlated to spot prices (see FIG. 3).
However, at the retail level, previous studies on gasoline prices have found price asymmetry. Price asymmetry is the phenomenon where prices tend to move differently depending on their direction. In the case of gasoline, this means that retail prices for gasoline may rise faster than they fall. Moreover, although retail prices are not very closely correlated to rack prices (see FIG. 4), for the most part they move in response to changes in wholesale or raw material prices further upstream in the manufacturing-distribution chain. At the national level, lagged wholesale prices alone can thus be used to predict retail prices. FIG. 5 shows an example of a national average of actual and forecasted retail prices for gasoline on the national level where the forecasted retail prices are calculated using lagged wholesale prices on a week-by-week basis. Specifically, the next week's change in retail gasoline prices on the national level can be predicted from a symmetrical response model which consists of a moving average of prior wholesale gasoline prices. The closeness of the predicted estimates to the actual values shows that, on the national level, wholesale and retail gasoline prices are generally very closely linked. This closeness helps explain why it remains very difficult to predict price movement of gasoline, a type of commodity, below the national level and/or at a particular locale.